The Founder Institute, Ottawa Chapter
What does this worldwide organisation offer? Did I just walk into the Lions Den?
We met up at the venue on Hamilton Avenue on a mild Ottawa winters night (only minus 4!). Running late, I took my place at the back of the room on a swivel chair instead of muddling my awkward frame through a line of seats packed closely together. It somewhat felt like I had entered a small US town hall meeting and form the moment I entered, I felt like I was being preached to by an MLM group leader in a slightly aggressive, US military sergeant sort of tone. A fair gut feel? Being the aggressive dude myself, was I prepared to sit through it? Well, let’s see.
Founder Institute, Idea-Stage Startup Accelerator
The Founder Institute is a worldwide accelerator programme for startups which nurtures founders and uses your real world business and startup problems as cases in which to evolve business acumen and develop your startup. Researching it’s presence in the UK, it seems there is surprisingly little, though Europe does have an accelerator. That said, their blog posts rightly reference the UK and Europrean tech scenes and indeed, TechCity UK. However, they miss out TechNorth, which I argue is a bit of a shame. [Edit: Though having written this, this meetup just popped into my inbox this morning].
Unlike other accelerators such as Y Combinator, there is no funding and a $1,000 joining fee. Members pay it after sitting through a really basic aptitude test. In my experience, programmes using these sorts of test accept anybody! The test isn’t really important and as someone who’s spent alot of time around psychometrics, especially as an ex-Mansan, they don’t even test what they say they intend to test.
The FI programme boasts around 40 mentors drafted in to help aspiring startups build and scale their products and services by providing support and advice to only one fixed cohort of people per chapter in any one 14 week (4 month) intensive training and mentoring programme, at any one time. Advice is not just provided from the mentors themselves, but from each other. Indeed, they are obligated to help each other during the programme so that everyone succeeds.
This obligation extends further than simply advising your peers. The way Founders Institute was explained to us, there is a 10-year warrant of 3.5% “shareholding” in your company which is split 15%:85% to the Founders Institute and Ecosystem, with the latter split 3 ways. 30% for graduates, 30% mentors and 25% to the directors of the local chapter.
Working through an example. Suppose your cohort is 20 strong when they graduate. What FI’s payment appears to mean is that, say your company makes $100,000 in profits in the first year and then sell immediately. You keep £96,500 of that, with the £3,500 being split as:
- $525 to the Founder Institute
- $1050 to the mentors of the cohort
- $1050 distributed among the graduates in your cohort — which for the 9 graduates of Ottawa Fall/Winter is $116.67 CAD each
- $875 to the directors of the chapter
Mental Mapping: How does this compare to the UK?
Now, not being a Canadian, I am not sure if this can be in any way offset against tax. However, Canadian formal company structures definitely have many UK parallels and from my [sadly detailed] knowledge of them, it means I suspect it won’t since it is not a subscription or payment for professional services — FI effectively is a non-voting, non-executive director and shareholder, as far as the law on UK limited company shareholding is concerned.
In any event, drawing parallels with what you otherwise would pay for marketing, coaching, support, advice etc. and counting them all in, this is actually pretty good value.
Marketing and PR
This will come out at $3,000 easy (video, advertising, press releases, media and news)
Contract and holistic Financial Advice
It’s often the case that you as a founder, have to bridge financial skills of accountants, legal professionals etc. who can only act as advisors. In the UK, you are ultimately responsible for your company’s performance on all fronts. If your accountant makes a mistake, it’s your fault and you get penalised [so choose wisely]. However, you also have to stitch together all the parts. Mentors can help a lot here and they do so having had to bridge these for years. Under no circumstances skimp on legal or accountancy. It’s the piecing of the jigsaw together that this applies for.
If you consider how much you want to be paid and how much time that would otherwise take to research, that is nearly $1,000 for that year easy too.
Network Contacts
As much as I hate this, it is important to be able to have a collection of people to open doors for you. I’ve taken the harder road in my time and in reality, looking back, if I had spent more time marketing through better quality networks, it may have been better. However, you have to spend a lot of time networking! You may go to 100 different, 2.5 hour events a year, each with 100 people and only ever get 5 enquirers, if any at all, from those 10,000 attendees. Hence, you have spent 250 hours, or 6.25 working weeks networking just to get 5 enquiries. So it’s important both that you understand what you want to get out of such events, but also develop an understanding of how much that costs you in salary, even if it is an evening event.
Still, leveraging other people’s contact appears to be a much easier route. You don’t connect to sell to them directly, You connect to see what contact connections you can sell to. Plus, FI mentors are incentivised to make it work since they get paid if you make money. As a lean practitioner, albeit one who hates selling, I have to accept that both sets of incentives are aligned.
SEO and Lean-Startup Techniques
This one is interesting. In the UK you typically pay around £400 a month in SEO costs (£4,800 or around CAD$7,940 a year). Even good quality, one-to-one, one-off training courses will set you back up to $1,240 dollars. To get this from mentors gives you an instant benefit of that amount of cash.
So all in all, there is around CAD$8,000 of stuff that you are getting for giving up 3.5% (or $3,500) of CAD$100,000. However, this isn’t the whole story.
Dilution
When giving people or organisations an equity stake in your business, one of the things you must look at is whether or not you need to dilute the shares. 3.5% of $100,000 is one thing, but 3.5% of $10 million, is a different league at $35,000, especially for 10-years. The $8,000 or even $10,000 starts to look very attractive when you’re suddenly owing $35,000 for the same service.
Hence, there is a sweet spot. FI obviously want growth. They want to get big companies as they can then attract more mentors, make more money and go above and beyond what they would otherwise get for doing this on a regular paid system.
Graduate Success Rates (< 35%)
Less than 35% of graduates make it through the programme (indeed, in some cases, some chapters ended with 5% — which in a way, is a good thing as anyone selling distributes the pool funds amongst less people, meaning more each). FI have a rigorous bar which means that the cohort must maintain a strong idea, fully validated and hit their deadlines otherwise they are dropped. There are three tests they expect you to pass each time you pitch:
- Does it solve a real problem, or add value, for a significant number of people?
- Do you have a solution to the problem which can’t be trivially copied by someone else (especially can someone else just add it as a feature to a product in that space)?
- Can you make money from it enough to sustain the people working on the business and ensure investors profit?
However, if founders are dropped, they get a second bite of the cherry for free. There is no second enrollment cost nor second $1,000 fee.
Through their “social accountability” (enforcement is strangely absent) what this means is that at least 65% of the cohort won’t pull their weight, won’t contribute or won’t have a strong enough idea. Hence, the remaining few go on to graduate and only a few of them (indeed, maybe none from one cohort) continue on to make a sustainable money making business for 10-years.
Canadian Startup Scene
Through other research, I was quite surprised to find Canada’s startup and SME survival rate is orders of magnitude better than the UK’s! We in the UK have a failure rate of 90% in the first two years whilst Canada scores a “measly” [in a good way] 30%. 50% of Canadian startups fail after 5 years, in total contrast with the UK’s survivability distribution. The Founder Network claims a survival rate of 81% which is extremely high. This shows we in the UK still have a long way to go to support SME’s through training, entrepreneurship programs, accelerators, government support (none and only going to get worse), access to training, advice, support, payment and credit control, the civil litigation system etc. We are a categorical mess! With an environment like that, we can’t hope to compete with some of the world’s fastest growing startup ecosytems.
Admittedly, it’s kind of academic, as UK startups and scale-ups have lost significant pots of funding simply by the population voting to Leave the EU and we can only expect that to get worse. Certainly for me, the UK isn’t in my company’s medium and long-term future roadmap as the main place to do business or grow and I say this as someone born, bred and living in the UK his entire life.
The Cohort
So the 35% of graduates earn from your success and around 9 in each cohort in reality the number that go on to survive 5 years is about 50%. So you are looking at 4 or 5 (4.5 for the sake of the math) but because this is a small value, it’s entirely possible all will fail before 5 years and it will be other FI cohorts that make the money. FI gets money from all their cohorts, whatever happens. Yet, you only get it from your cohort. If you are lumbered with cohorts that don’t work or sell, or contribute, even after graduation (though the rigorous process seems to counter for that) then you may stand to gain nothing from the effort you put in to help them succeed and if your company works, which the Canadian ecosystem appears to suit, it’s possible to end up paying folk who did little to contribute to your success, even if you contributed a tonne to theirs and it failed because of them. If you’re a capable entrepreneur already, this may not be for you tbh as it carries way too much risk. After all, if you’re already capable, you’re better off being a mentor.
This is a particular concern to folk like myself who already have significant startup and organisational expertise and after my experience at HiveMind, I never want to repeat that again, even at a lower rate of payment. Hence, when the evening started the way it did, it automatically got my alarm bells ringing. I had to battle through that to get whatever message they were sending.
The Mentors
There have been criticisms of the mentoring process, especially where it can be difficult getting hold of mentors outside the normal course of events. Many folk online seemed to experience a complete lack of support in what they would consider mentorship. That said, pretty much all of them were unianimous in that at least 50% of mentors really brought a lot to the table and added value. Arguably, it would seem they add value well beyond the other options available to founders, given the costs of obtaining those services elsewhere. I would also hazard a guess that it very much depends on the amount of skill each founder brings to the table, since such reporting is all relative.
Reviews from Former Scholars
The Founder Institute appears not to have the best reputation amongst former graduates. They don’t like the non-dilution of shares during the 10-year period, the $1,000 dollar enrollment (which is waived for some types of folk-often techies); the lack of funding and they also criticize the market fit. That said, there are a lot of positive reviews (which I have not checked as genuine-so not an endorsement) and what’s interesting about the critique is that a seemingly common theme developed about Adeo, who is apparently regarded as tyrannical and ego driven. This seems to come out in styles of the pitches from the local chapters and explains Shawna’s initially direct tone. I’m not 100% sure that’s the whole story, but it would certainly explain some of the characteristics and in reality, business can be really rough. So it might be an acceptable part of the experience.
Summary
Will I be joining? I don’t think so. Not necessarily because there was something that categorically put me off, but because I think I’m a little too far advanced for an initial startup, even in a new country (not that I even know whether I can start up a company in Canada or not at this stage). That said, the Canadian startup ecosystem as a whole does provide some impressive numbers. It also provides a few lessons for us in the UK. Perhaps after Brexit the whole system can look at the entire ecosystem and change what it does, but in reality, it’ll lead to less money and given our tradition for bureaucracy, an overwhelming amount of paperwork. The legal process won’t be fixed any time soon (it’s been at least 20 years) and I don’t think companies will take as well. The FI may work quite well to get folk up to scratch but sustaining them past their first couple of years in the UK would be difficult and likely to end in abject failure to many.
In any event, the Canadian startup ecosystem is worth delving deeper into I think. As it’s success rates are promising relative to the UK.
What has your experience been to date? Let me know in the comments and don’t forget to like the article if you think others need to see it.
